Welcome to illuminati silver, we tell you
the truth about silver. Today is Sunday 27th March 2016 and we are
asking the question is physical silver a cheap purchase at $15 an oz, especially as it’s
fallen from a high of $50 during the past 5 years.
Well firstly you should ask yourself what is your time horizon?
If you said just 12 months, we would say do not waste your time buying physical, but perhaps
paper trade it – because even if silver jumped $2 – $3 an oz you would still lose
money based on buying and selling spreads and premiums.
If you said 10+ years then our view would be somewhat different – and this is why:
Supply: The Silver Institute has quoted in its February
2016 report “Global mine supply production is projected to fall in 2016 by as much as
5% year-on-year….. many analysts expect global silver mine production to fall through
2019 as primary silver production from more mature operations begins to drop”.
OK that sounds promising – reduction in physical mine supply – but what about recycling
we hear you ask. Well again according to the Silver Institute: “Scrap supply, which has
been on the decline for several years, should further weaken in 2016. This outlook is based
on additional losses in photographic scrap, a depleted pool of near-market silverware,
jewellery and coins, and slowed scrap flows from industrial sources.”
Now this sounds even more promising – and yet there is a third part to this supply equation:
It’s important to consider that the majority of silver that is mined comes as a by-product
of mining operations for other metals. Approximately 55% of all silver produced comes from copper,
lead, and zinc mining. Another 13% comes as a by-product of gold mining, leaving less
than a third being mined in its own right. So, much like gold miners, copper producers
are struggling to cope with low spot prices. One of the ways they are trying to survive
is by cutting production. Nine of the largest copper producers announced they would cut
output by 200,000 metric tons in the first quarter of 2016.
The contraction in the base metals mining industry may indeed contribute to supply tightness
in silver and if it continues may exceed the 5% mine production fall mentioned by the Institute.
Now we must not forget about above ground available stocks, about which opinion is divided,
but the consensus rests somewhere between 1 billion and 2 billion available ounces.
Now any deficit in mine supply of 50 million ounces or less, can easily be catered for
by this above ground stock, however, for such stocks to leave the hands of its owners then
the price will have to rise from current levels. Nevertheless it is available, but once again
it would not take many years of decreasing supply to make an impact on these.
Now let us take a look at demand. Demand:
More than 50% of demand comes from industry. In fact in 2015, according to the Silver Institute
industrial fabrication demand accounted for an estimated 54% of total physical silver
demand. Now here is the exciting part, it quotes “photovoltaics
for solar energy is projected to rise in 2016 and surpass the 2011 peak of 75.8 million
ounces”, primarily the result of solar panels which could account for as much as 13% of
total silver demand in 2016 compared with 1.4% in 2006.
Some more good news: “Silver demand from ethylene oxide producers is expected to jump
to over 10 million ounces this year – an increase of more than 25% compared with 2015”.
The bulk of this demand is expected to come from China (which is one reason why we frequently
state; watch what is happening in China). Now if this is not enough good news for silver
bulls, well even jewellery fabrication is expected to increase by 5% in 2016 – with
the envisaged fall in demand in China being made up elsewhere.
It gets even better; Coin demand too is expected to be robust following a record 130 million
oz of demand in 2015. Many analysts predict that with prices being as low as they are
even this record may be surpassed, especially as early signs show that both US and Canadian
Mints are forecast to run out of ‘blanks’ later this year should this trend continue.
For the record in 2015 coin demand made up an estimated 12% of total physical demand.
Finally Indian silver demand in 2016 is also expected to grow on the back of investor interest
and growth in jewellery, decorative items and silverware fabrication. In 2015 it imported
some 228 million oz of silver bullion; and similar if not greater amounts are anticipated
this year. So all of this is expected to lead to a widening
of the deficit between supply and demand which should prove positive for prices. Yes? Well
not quite, as the Silver Institute notes: “While such deficits do not necessarily
influence prices in the near term, multiple years of annual deficits can begin to apply
upward pressure to prices in subsequent periods.” Ok then, that’s fair enough, however we
hear you argue; Silver hasn’t been so cheap relative to gold for more than seven years
and with mine supplies forecast to contract this year that may be a sign it’s ready
to come out of the yellow metal’s shadow and investors will sell their gold and buy
silver thereby increasing its price. Well theoretically yes but with the ratio
standing around 80:1 according to Ned Naylor-Leyland, Manager of Old Mutual’s Gold and Silver
Fund in London, “The ratio can go higher still, but at some point it will turn, and
when it turns it tends to turn with real vigor,” but he adds “I’m not moving yet. When
the trend change is clear, I’ll be ready to move money across from gold to silver.”
Capital Economics too have indicated that the GSR could fall back to 70:1 later this
year and towards 65:1 in 2017. However, data compiled by Bloomberg shows
that while investors have embarked on a gold buying spree, increasing their holdings in
exchange-traded funds by 18% this year, they reduced their assets in silver products by
1.2% through February. However this has reversed in March when ETFs backed by silver had their
biggest inflows over three days since 2013, rising 500 metric tons to the highest since
September. So all is looking good and hearty for silver.
Is there anything we’ve forgotten? Oh yes Economic slowdown, Deflation and Negative
Interest rates. Please tune in to part 2 which will be published
tomorrow. We hope you have found this video interesting
and informative and if so, please give it a thumb up and share it on twitter. Also kindly
visit our website at www.illuminatisilver.com and look at our Facebook page which is updated
daily at www.facebook.com/illuminatisilver Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of